AAON Sees HVAC Recovery, $1B Data Center Opportunity Despite Margin Pressure

Key Points

• AAON is seeing recovery in its light commercial HVAC business, with CEO Matt Tobolski saying 2026 should be a “good, strong recovery year.” He pointed to improving bookings, share gains, and demand in areas like healthcare, retail, and warehouse/distribution.
• Data center demand remains a major growth driver, with AAON raising its outlook to $1 billion. The company says demand is broad-based across airside, chiller, and liquid cooling products, and its BASX business now has more than $2 billion of revenue capacity across its manufacturing base.
• Margins are under pressure from production and outsourcing issues, including coil outsourcing and earlier disruption from refrigerant transitions, supply chain constraints, and ERP implementation problems. AAON says operations have improved, but near-term outsourcing should continue until internal capacity catches up with growth.

AAON NASDAQ: AAON executives outlined expectations for continued growth in both light commercial HVAC and data center markets during a William Blair presentation, while also addressing recent production challenges, margin pressure and ongoing efforts to scale the company’s operations.

CEO Matt Tobolski said AAON operates through two primary brands: the legacy AAON brand, focused largely on semi-custom and custom rooftop units for light commercial customers, and BASX, which serves data center customers. Both businesses are built around customized solutions intended to improve total cost of ownership, he said.

Tobolski said AAON has expanded rapidly in recent years, growing from under 2 million square feet of factory space to more than 4 million square feet, and from about 2,000 employees to 7,000 employees over roughly four years. He said the company’s recent focus has been on building the operating platform needed to support that scale.

Light Commercial Market Showing Signs of Recovery

Asked by William Blair’s Ryan Merkel about the light commercial outlook for 2026, Tobolski said the market is showing signs of improvement. He said AAON’s 2025 volumes were down, but not nearly as much as the broader market, which he described as evidence of outperformance.

“As we exited 2025 ... we’ve continued to see more and more conversations in our traditional transactional type business,” Tobolski said. He added that in the first quarter, those conversations began translating into stronger bookings.

Tobolski said he expects 2026 to be “a good, strong recovery year” for the AAON brand and said the company is continuing to gain share in light commercial markets. He highlighted national account opportunities in healthcare, big-box retail, warehouse and distribution centers as areas where AAON has invested over the past two years.

Production Issues Eased, but Outsourcing Still Weighs on Margins

Tobolski also addressed production issues that affected AAON in 2025 and into early 2026. He said 2025 included “a lot of noise,” including the EPA-mandated refrigerant transition, supply chain constraints related to new components and disruption from an ERP implementation that affected coil production at the company’s Longview site.

He said those issues affected Longview and also reduced throughput in Tulsa because Tulsa relies on Longview for internal coil supply. By the first quarter of 2026, however, Tobolski said AAON’s Oklahoma operations were running at record rates.

Margin pressure remains a focus. Tobolski said about 200 basis points of margin pressure in the first quarter came from outsourcing coil production. He said AAON prioritized internal coil capacity for BASX products because data center customers have tighter quality requirements and qualifying additional vendors takes time.

Tobolski said pricing actions have already been put in place to address price-cost dynamics identified late last year. However, he said coil outsourcing will continue in the near term because the company’s consolidated growth rate is expected to be 40% year over year, and internal coil capacity is not ramping as quickly as demand.

For the long term, Tobolski said AAON is targeting gross margins in the mid- to high-30% range for the AAON business, while the BASX business has a target margin profile around 30%. He said BASX margins are being pressured by the pace of growth, with the business doubling last year, expected to double this year and having doubled the year before that.

Data Center Demand Remains Broad-Based

On data centers, Tobolski said demand remains strong and that AAON has raised its data center outlook to $1 billion. He emphasized that the company has been careful not to overcommit capacity as it brings new production online, particularly at its Memphis facility.

The Memphis site added 800,000 square feet under roof and represents a major step-up in AAON’s manufacturing footprint, Tobolski said. He said management waited to gain more runtime and confidence in the ramp before taking on more orders.

Tobolski said demand is not limited to liquid cooling. He said AAON continues to see strong demand for traditional airside products, which are used in both cloud and AI data centers. Even liquid-cooled data centers still require 30% to 40% of capacity through air, he said.

For the first quarter, Tobolski said backlog growth was relatively balanced among airside products, chiller products and liquid cooling products, “kind of in that order.”

He also said BASX has more than $2 billion of revenue capacity across its manufacturing fleet, though he cautioned that capacity is not available “like a light switch” and must be ramped. Oregon is close to capacity at roughly $300 million, Longview still has lines and shifts that can be added, and Memphis has four production lines currently vacant that can be turned on over time, he said.

On liquid cooling competition, Tobolski said AAON is not focused on commoditized 500-kilowatt coolant distribution units. Instead, he said the company targets customized, large-capacity systems for hyperscale customers, including 2-, 4-, 5- and 6-megawatt CDUs. He named Motivair, Modine and Vertiv as companies AAON sees in parts of that market.

ERP Rollout Paused as Growth Accelerates

Tobolski said AAON is pausing additional ERP go-lives because of the company’s higher growth outlook. Longview and Memphis are currently live on the system, while Oregon would be the next intended site, followed by Tulsa. However, he said no dates have been assigned for those locations.

The company is instead focusing on making sure the system supports higher velocity at Longview and Memphis and adding enhancements that management now views as essential to how AAON wants to operate.

Rooftop Business, Heat Pumps and Operational Discipline

In the rooftop business, Tobolski said AAON’s price premium is about 10% relative to closer competitors with more comparable catalog products, though some lower-featured products may be 20% to 30% cheaper. He said AAON sells against competitors based on energy efficiency, cabinet durability, indoor air quality configuration and product life cycle.

Tobolski also discussed AAON’s Alpha Class heat pump platform, which includes ECO, PRO and EXTREME series products. He said the ECO series provides heat pump heating down to about 37 degrees Fahrenheit, the PRO series down to zero degrees and the EXTREME series down to negative 20 degrees. That range allows national account customers with locations across different climates to use a right-sized platform rather than a single product for all sites, he said.

Management also emphasized internal changes designed to support AAON’s growth. Tobolski said AAON has built a professional supply chain organization, added strategic sourcing and vendor scorecards, and increased its focus on lean manufacturing. He said a series of eight Kaizen events on the company’s high-volume 30-ton line in Tulsa increased volume by 20% while reducing work on the line.

In the finance discussion, management said AAON is investing in people, training and processes to improve efficiency, optimization, cash generation and risk management as the company scales.

About AAON NASDAQ: AAON

AAON, Inc NASDAQ: AAON is a U.S.-based designer and manufacturer of heating, ventilation and air conditioning (HVAC) equipment for commercial and industrial applications. The company's product portfolio focuses on rooftop packaged units, water-source heat pumps, chillers and custom-engineered solutions that cater to a wide array of building types, from office complexes and schools to data centers and healthcare facilities.

AAON's core offerings include rooftop units available in gas, electric and dual-fuel configurations, precision air-conditioning systems for temperature- and humidity-sensitive environments, and modular chillers suited for both indoor and outdoor installations.

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